Universal Basic Income Challenges and Scope for Implementation of UBI in India.

1. ECO DOSSIAC
TEAM HRD
DBE, DU
Team Members:
Arham Wahab
Gaurab Aggarwal
Rahul Singh

2. 1. High cash to GDP ratio
– Over 67.5% of Indian population employed in informal sector
– Informal sector in India operate on cash
– Over 57% of the population don’t have bank account
– Cyber security menace
– Poor infrastructure , banking , non reliable internet in major parts of the country
3. Velocity of money affecting the economy
– Velocity of money changes the supply of money in the market. An increase in the money
supply will lead to an increase in the amount of money that people and firms will hold and
they will spend more. Therefore aggregate demand will increase.
– An increase in the money supply should theoretically lead to a commensurate increase in
prices because there is more money chasing the same level of goods and services in the
economy, which might lead to inflation.

3. 2. High affinity for cash
– 25% of GDP constitutes of black money of which over Rs 3,79,450 crore is cash i.e. easy to
maintain black money encouraging high affinity for cash
– Education in India is a major problem as a result over 60% of the population has no
reliance on banking and digital systems
– PSU Banks (core of Indian banking system)are unable to penetrate in rural markets
– Tax avoidance
• Only over 1 crore people pay tax
• Rest population is self motivated to do major transaction in cash to avoid digital filing of a
transactions i.e. avoiding tax
– Cash is not merely a symbolic representation of value, it is the idea of value captured and
owned.
– It is the product of labor that is an entity by itself and becomes much more than what it
can buy. Sitting on a pile of cash gives pleasure both metaphorical and real

4. 4. Economic inefficiencies solved by M-PESA (citing Kenya’s example)
ASSUMPTION- Perception of population towards digital payments is same in India and Kenya
• M-PESA reshaped Kenya’s banking and telecom sectors, extended financial inclusion for nearly
20 million Kenyans
– Created of thousands of small businesses.
– M-Pesa has successfully reached low-income Kenyans.
– M-Pesa facilitated increased money circulation increasing local consumption, more business for
local store owners
– Muggers realized few people carry liquid cash M-Pesa contributed to money security, that is by
enabling people to safely store funds in their mobile money account.
– M-Pesa reduces the overall transaction cost of moving capital along a network and increases the flow
of capital.
– Financial services can be extended to reach people who were previously unreachable.
– Mobile money as a new industry that is precipitating new investments for new ventures, new jobs and
new revenue streams for existing companies.
• Mobile money as an infrastructure supports new businesses in various industries.
– Formalizes the informal financial sector , enabling savings, loans and investments in lieu of “cash
under the mattress”.
– Reduces frictions associated with cash

5. 5 M-PESA exploiting price elasticity and income elasticity of demand
• As per the case and the economic conditions prevailing in Kenya, the M Pesa
would have in elastic demand curve.
• The service of M Pesa has deep penetration and is a accepted alternative to
standard banking system. There is a need for such platform to help people
transfer their remittances.
• Relatively inelastic demand is one when the percentage change produced in
demand is less than the percentage change in the price of a product.
– For example, if the price of a product increases by 30% and the demand for the
product decreases only by 10%, then the demand would be called relatively inelastic.
Hence, any increase in the usage fee of M Paisa would have relatively less impact on
the demand of M Paisa.

6. • Income Elasticity of Demand
o Measures the responsiveness of the quantity demanded for a good or service to a
change in the income of the people demanding the good
o It is calculated as the ratio of the percentage change in quantity demanded to the
percentage change in income. For example, if in response to a 10% increase in income,
the quantity demanded for a good increased by 20%, the income elasticity of demand
would be 20%/10% = 2
o As stated in the case, that for transfers greater than 100 000 Kenyan Shellings, the
mpesa is cheaper that western union
o Even from the survey table, we can observe that the average household income
expenditure of the M Pesa user is significantly greater (almost double of non users).
o We see that people with higher income groups use the M Pesa service more
• Marginal Cost Curve
o Marginal cost is the change in the opportunity cost that arises when the quantity produced is
incremented by one unit, that is, it is the cost of producing one more unit of a good. In general terms,
marginal cost at each level of production includes any additional costs required to produce the next
unit
o In case of M Pesa, the cost of adding a extra user for m pesa is very
low because of the nature of the business model
o The maximum portion of cost involved is fixed cost. The investment involved
is huge and the operations is scaled for thousands of users at a time not a
single user
o Hence the fixed cost will be downward and the marginal cost being very low.
Q6

7. • Q7
• When more transactions move digital, then its more open to tracking. In a completely
cashless economy - you cannot bribe a policeman/ government official via electronic
means as it would easily be tracked
• Online transactions are instant and faster. Thus the delivery and efficiency of government
services would increase. Imagine using a smart card at a kiosk and getting a ticket from
traveling from one end of the city to another end. Its just clean and efficient
• As a consequence of #1, we are assured of better accountability. When money is properly
accounted for, then there will be lesser scams
• Reduced instances of tax avoidance because it is financial institutions based economy
where transaction trails are left
• It will curb generation of black money
• It reduces real estate prices because of curbs on black money as most of black money is
invested in real estate prices which inflates the prices of Real estate market
• There will be greater efficiency in welfare programs as money is wired directly into the
accounts of recipients. Thus once money is transferred directly into a beneficiary’s bank
account, the entire process becomes transparent. Payments can be easily traced and
collected, and corruption will automatically drop, so people will no longer have to pay to
collect what is rightfully theirs

8. • Based on economic theory, corruption, which is a form of tax, decreases aggregate supply. That is,
it shifts the economy's positively-sloped aggregate supply curve to the left. Assuming that the
economy's negatively sloped aggregate demand curve remains stationary, the aggregate supply
curve's leftward shift implies a rise in the aggregate price level, which leads to inflation and
inefficiency in the economy. Also, due to access demand the government might print more
money to control the deficit , which in turn would shift the demand curve to the right leading to
further inflation.
• Now because of a cashless economy, the corruption would reduce which in turn would push the
supply and demand curve back to there original position, leading to efficiency in the market.

9. M A K I N G I N D I A C A S H L E S S
o A phase wise detailed plan needs to be charted out for gradually making it necessary for all business and
vendors to install the digital payment modes and putting restrictions on the use of cash for large
transactions.
o Developing Alternative Digital Payment Ecosystem.
o Like UPI App, BHIM App, and much sought after Aadhar Based Payment System.
o Improving the Indices of Financial Literacy, Creating Awareness about the advantages of Digital Payments
and addressing the apprehensions of the masses.
o Government Sponsored Programs and Subsidies for the integration of low income business into Digital
Payment Network. Role out of new POS devices to the targeted sector.
o Innovative Banking Solutions like RBI issuing Payments Bank license of Telecom Operator ad NBFCs will
enhance the financial Inclusion.

10. E X E C U T I V E S U M M A R Y
o Indian is a primarily a Cash based economy and the transition towards a cashless economy would be steady,
in phases and would require a lot of push for sustainable digital ecosystem.
o India has a high Cash Ratio because of several wide ranging reasons. Low Financial Inclusion and almost
zero financial literacy are two major road blocks. Government Reforms, Lack of Technology and Cash
Culture also adds to the high cash ratio.
o Velocity of Money is the amount of GDP that a single rupee is able to generate. The increase in the
circulation of money would alter the money supply and will provide a push to GDP.
o M Pesa has been a perfect match for the economic state of Kenya. It has primarily resolved the problem of
financial inclusion in the country. The state of law and order has provided a boost for M Pesa. It has made
transfer of money more convenient and instantaneous. Over a lakh M Pesa agents demonstrate the
structural efficiency that M Pesa has provided as a alternative banking system.
o The demand curve for M Pesa would be relatively inelastic because of the penetration and dependency on
M Pesa. The Marginal Cost Curve would be increasing at a very low rate because of the huge fixed cost and
framework required for providing this service.
o Accountability, Transparency and Regulatory Compliance are the major perks of a cashless economy and
incidentally these are the major drivers of corruption. Going Cash less will not only boost the velocity of
money, eliminate the hoarding tendency but will also eliminate corruption. Statistics suggest that countries
like Sweden, Norway and Denmark which are leaping towards a cash less economy has seen a considerable
year on year decrease in associated crimes.